Business Finance: Profit, Cash Flow, Working Capital, and Cash Budget

Business
Finance

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Executive summary......................................................................................................................3
I) a) What is meant by Profit and Cash flow and how they are different....................................3
b) What is meant by Working Capital and, the meanings of Receivables, Inventory and
Payables.......................................................................................................................................4
c) How changes in Working Capital affect Cash flow................................................................5
II) Apply the concepts in (i) above to this company to show how the way the company is being
managed might affect its financial results...................................................................................5
III) Analyse and recommend what steps should now be taken to improve this company’s cash
flow through better Working Capital management.....................................................................6
TASK 2............................................................................................................................................6
Prepare a monthly cash budget for the FOUR months from 1st Jan to 30 April 2021................6
Are there any observations or recommendations that you would make to the management of
Thorne Estates arising from your analysis...................................................................................7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
Business finance refers to the funds that are allocated in the business to have the future
growth and can earn the profit in the future easily. Finance is the major source of contributing
money. It helps in purchase of raw materials, assets for the company so that there is proper flow
of work in an organisation and can achieve the task in an easy manner (Ady and et.al., 2020). It
helps in meeting the financial needs of an organisation and helps in accomplishing the task in an
easy manner. It helps in fulfilling the needs of the society by providing them employment so that
they can earn there livelihood in an proper manner. The decisions regarding the firms financial
position are taken by the firms committee and helps in taking the decision in proper manner. The
topic covered under this report are the meaning of the profit and cash flow, working capital
requirements, its effect on cash flow, cash budgets of four months and the observation and the
recommendations that the management would make to accomplishing the task in an proper
manner. There are different types of finance in the business that are debt finance, equity finance
so the company may have earn the profits in an near future.
TASK 1
Executive summary
The company manufactures the gym clothing and the footwear and supply the large design under
the own brand. The company has the turnover of £ 300 million. The corporate customers of the
company are Tkechers Ltd and Sadidas Ltd. The Arpha company owns the 30% of the company
share and remaining is distributed in family members. The debt of the company is also increased
to £95 million from £ 60 million and company asked shareholders to invest more money. The
arpha believes that the issues of the Sadidas company arise due to the supply of sub standard
material in 2018. The new company is built in London for the large stock of the supplies and the
materials which was built in the London warehouse and should be maintained till the disputes of
the company are over (Zhang and Toffanin,2018).
I) a) What is meant by Profit and Cash flow and how they are different
Profit: It helps in defining the balances in the company after deducting the expenses from
the revenue. It helps in distributing the profits to shareholders or the owners of the company in

an proper manner which can be reinvested in the company so the company may have the future
growth and helps in accomplishing the task properly. The profit of the company is divided into
three parts that are gross profit, operating profit and net profit so that the company financial
position is to be measured in the proper manner and will not affect the company in the future.
From the profit the company can purchase the new assets so that the revenue in the future will
also increase and task will be accomplished in the proper manner (Beck and Levine eds., 2018).
Cash flow: It means the continuous movement of cash into and out of the business. When
there is purchase or the sell of inventory in an organisation it is recorded as the cash flow of the
company. It is also arises from the movement of the cash from the customers or the debtors. It
helps in finding the proper financial position and will have the growth in the business. It helps in
identifying the flow of cash at a specific point of time and it may have the positive as well as the
negative impact in an organisation. The positive flow of cash in the company means that the
company may have the more money to move into it where as negative flow of cash means the
company have the more money to moving out of it. Three parts of the cash flow are operating,
investing and financing.
The difference between the profit and the cash flow are that the profit means that the
money left in the business after all expenses are paid and the cash flow means the net flow of the
cash in and outside the business.
b) What is meant by Working Capital and, the meanings of Receivables, Inventory and Payables
Working capital refers to the difference between the company current assets and the
inventories of the raw material and the finished goods in an organisation and the current
liabilities of the company so that the exact position of the company is to be identified in an
proper manner and helps in accomplishing the task in an organisation and will have the future
growth (Bergset,2018).
Receivables refers to the claim which a individual have for the payments which are helps
by the business for the supply of the goods and rendering of the services in an organisation to
have the future growth and helps in accomplishing the task properly in an organisation. It is an
invoice which is raised by the business so that the customer payment is made in the agreed time.
Inventory refers to the hold of the stock or the assets so that the goods will be resale
properly in an organisation and can earn the revenue properly and have the future growth. The